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Bank of Tanzania invites WOCCU to develop reg. framework
MADISON, Wis. (10/27/10)--At the Bank of Tanzania’s request, the World Council of Credit Unions (WOCCU) will soon begin developing and implementing a regulatory framework for the country's savings and credit cooperative societies (SACCOS), or credit unions. Bank of Tanzania is the country's central bank.
Click to view larger image The World Council of Credit union’s new regulatory framework will help strengthen Tanzania’s credit unions to bring safe and sound services to communities that only have access to informal savings and loan groups, such as the one pictured. (Photo provided by World Council of Credit Unions)
WOCCU’s program will involve training regulators from the Cooperative Development Department (CDD)--part of the Ministry of Agriculture, Food Security and Cooperatives on risk-based supervision and regulatory systems and policies, and effective operational and financial standards for SACCOS. WOCCU’s initiative is its first credit union development program in Tanzania, an east-central African country. Tanzania’s SACCOS range from informal, community-based cooperatives to employer-based institutions that took root as part of a government-sponsored microfinance initiative in the 1960s. The institutions follow traditional operating guidelines whereby members are required to establish a particular amount in savings to obtain a loan, and loan sizes are determined as a multiple of the member’s total savings. Liquidity is scarce, and waiting periods to obtain a loan are long. Many SACCOS employees are volunteers, and despite being the most prevalent semi-formal financial intermediary in the country, regulation and supervision to date have been virtually non-existent. Though SACCOS lack proper guidance and oversight, the number of financial cooperatives in Tanzania has exploded in recent years. In 2009, more than 5,500 licensed savings and credit cooperative societies were in operation, an increase of more than 50% in three years. Despite the proliferation of SACCOS, no single entity provides centralized financial or statistical information on the institutions. SACCOS can be found operating for as long as six months in arrears without reliable data, and regulatory authorities have conducted little analysis of the information that does exist. As the SACCOS’ sector continues to grow, it faces an increasing need for central oversight to ensure appropriate financial discipline to protect member savings. With the increasing prevalence of SACCOS in Tanzania, potential outreach is high. Recent studies show that just 11% of the country’s population has access to some type of financial institution. In a 2007 appraisal of the SACCOS sector, WOCCU found that the system was capable of broadening the availability of financial services beyond its current outreach of 800,000 people nationwide, but that it needed to overcome a series of constraints before significant development could occur. “Tanzania’s SACCOS sector has enormous potential to provide safe and affordable financial services to a broad cross-section of the population, but its relative size and lack of regulatory resources have hindered growth,” said Brian Branch, WOCCU executive vice president and chief operating officer. “Establishing proper reforms, a framework for safety and soundness and financial disciplines to protect member savings are the biggest hurdles and the first steps to reaching that potential.” WOCCU is working closely with CDD to develop and implement a modernized regulatory framework, train key staff in risk-based supervision, create an early warning system, develop policies for intervention and provide guidance in helping SACCOS improve their financial structure and operations.
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